The 13 Commandments of Savvy Consumers
Last week I wrote about the Consumer Action Handbook. This freely-available guide from the U.S. government is packed with useful information. I was leafing through the book again this morning before I put it away, and I noticed that the good stuff starts on page one with a list of thirteen quick consumer tips.
I've transcribed these tips below, quoting verbatim from various sections of the book (which is in the public domain), as well as adding my own experiences and advice.
- A deal that sounds too good to be true usually is. Offers that often fall into this category are promises to fix your credit problems, low-interest credit cards, deals that let you skip credit card payments, business/job opportunities, risk-free investments, and free travel.
- Extended warranties or service contracts are rarely worth what you pay for them. This has been documented repeatedly from many sources, including Consumer Reports, yet people still pay for them. They're not always a bad deal (I always take them out for laptop computers), but most of the time, you're better off self-insuring. Instead of paying for service contracts, put the money you would have spent into a separate savings account. When something goes wrong, pay for the repairs out of this fund. Here's how one Get Rich Slowly reader does it.
- Say no to credit insurance offers. Often offered with credit cards, car loans, and home mortgages, it is almost always better to purchase regular property, life, or disability insurance.
- There is no universal three-day cooling-off period. Don't be misled into thinking that you have an automatic three days to cancel a purchase. Only a few types of contracts give you a right to cancel. For example, when you buy something at a store and later change your mind, your ability to return the merchandise depends upon store policy. If you buy an item in your home, you might have three days to cancel.
- Think twice before sharing personal information. Guard your Social Security number and credit card information. Learn how to prevent identity theft through deterrence, detection, and defense. (Just yesterday my doctor's office asked for my Social Security number. Maybe I shouldn't have done so.)
- Beware of payday and tax refund loans. Avoid the payday loan trap. If you are short of cash, avoid both of these loans by asking for more time to pay a bill or seeking a traditional loan. Even a cash advance on your credit card may cost less.
- Not all plastic cards offer the same protections. Understand how your credit and debit cards work. When you sign up for an account, read the fine print. Your liability for the unauthorized use of a gift card or debit card may be much higher than the $50 maximum on your credit card.
- Real estate agents represent the seller, not the buyer. When buying, consider hiring an agent or lawyer who represents you.
- Home improvement and auto repairs are the subject of frequent complaints. Don't just go with the first company you speak with. Get multiple estimates. Ask friends and family for recommendations. From my own experience, I'd rather pay more for a company that I know does quality work instead of gamble on a cheap unknown.
- Think twice before you rent-to-own. Interest rates on rent-to-own purchases can be very high. If you miss a payment, you could end up with nothing. Consider other options such as buying second-hand at a thrift shop or through ads in your local newspaper.
- Don't buy under stress. Research suggests senior citizens, people in crisis (e.g., coping with a death or debt), college students, small business owners, minorities, and immigrants are especially at risk of being victimized. Avoid making big-ticket purchases during times of duress. This point cannot be emphasized enough. Salespeople will often attempt to create artificial stress because they know it makes you more likely to buy. That guy who knocks on your door offering to sell you the last frozen chicken in his truck at a discount? He's creating artificial pressure to get you to buy.
- Be cautious of Buy Here, Pay Here lots. If you decide to buy a car from a used car lot, be sure to read all of the papers before you sign. Don't sign contracts that allow the dealership to change the finance rate after you leave the lot.
- Work-at-home ads usually don't pay off. Be especially wary of ads that promise huge annual salaries; they often require expensive upfront fees with no guarantee. You risk losing your money and wasting a lot of time and energy.
Some of these probably seem obvious — others less so. It's all good advice, though. When I look at the list, I recognize several of these “commandments” that I've violated, particularly buying under stress. I've finally learned to just say “no” to anyone who wants me to make a decision now (especially if it's a transaction that I did not initiate), but it hasn't always been this way.
I'd add a few other “commandments” to this list. I've written before about seven essential skills to protect yourself from scammers, including:
- Seek recommendations from people you trust. Referrals increase the odds of finding a quality professional. There's rarely a need to flip blindly through the yellow pages (or google) to find a mortgage broker or a roofing contractor. Ask your friends, your family, your co-workers.
- Read everything you sign. This is vital. Read all the policy changes that you get in the mail from banks, insurance agents, and credit card companies. At the very least, read the documents on your major purchases, especially cars and homes.
- Don't invest in things you do not understand. If you don't understand the mortgage your broker offers, don't take it. If you don't understand buying stocks on margin, don't do it. If you don't understand that awesome new investment opportunity that your friend keeps pimping, then don't buy into it.
Can you think of other valuable consumer skills that should be added to this list?